Value-at-risk entrepreneurship: the secret sauce to stay cool

Value-at-risk, or VaR, is a well known measure of extreme risk in finance. Basically, it says what you could lose if things go fairly wrong.

And, as always, its mere existence gives rise to two types of trading profiles: those who couldn’t care less about VaR (rather focused on the optimistic scenarios) or those who do care. I am of the latter type. I like entering into trades that, if wrong, are not that bad after all. The reason? Basically, because I hate more to lose one euro than I like to make one.

And now the point: my entrepreneur style (formerly, intrapreneur) is naturally biased towards a VaR-friendly approach as well. Of course, looking for “not that bad extreme risks” adds complexity to the already challenging search for a viable business plan — it requires aligning a lot of dimensions and scenarios. But if you find the right combination, it can become your cornerstone not to panic out when things are slow, not to deviate from your original plan… In a nutshell, it is great for you to be a bit more cold-minded, just as the best traders.

Here you have an example: SciTheWorld, the company that I have co-founded.

  1. SciTheWorld was started while its founders were working. Part-time entrepreneurship. By doing so we knew that at most we could be wasting our after-work time — not a negligible cost but not a huge loss either. And the good news were that such a VaR actually had to be discounted by the fact that we started out as consultants in a domain different from our professional background (cybersecurity) which, in the end, gives us the highly-appreciated-by-traders diversification.
  2. I then took a sabbatical at work in order to boost it full-time. At most, I could loose the pace at which my career was growing — which was anyhow at a peak, I would say. And again, that VaR actually had to discount the fact that what I wanted to design at SciTheWorld, was an advanced technology 100% related to my career as a trader, and in which I had been researching for a long while already (2009–2016). So, not even the aforementioned career progression was that much at risk, either.
  3. Then, I went back to work since I was given the chance to take a role that could be linked to the expansion of SciTheWorld: the digitization of other areas of a bank, not only trading. I delivered as much as I could while managing to align it with SciTheWorld’s future credibility. This time, the VaR was that I could feel too comfortable in my new position to take myself the lead in developing the technology that ScitheWorld wanted to create. The technology wouldn’t be that good and I would be compromising my own future as a trader.
  4. When the person who asked me to come back to work left the bank himself, I took the chance to leave as well and boost again SciTheWorld full-time. By that time, we already had credibility at cybersecurity innovation and I myself had money enough to survive some time without compromising SciTheWorld’s funds so I went for it having in mind three major priorities: to create a digital brain based on my trading robot that can be used in other domains, not only finance but also cybersecurity, poker, marketing, real estate…; to democratize such a brain in finance to make the investment industry a bit more even playing field for retail; and to search for digitization methodologies that leverage the combination human-robot as opposed to the robot-only current massive trend — which can generate a worrying erosion of the social welfare in the mid-run. The VaR was again not bad: I could go back to the trading industry with an utterly advanced robot for me to do my job far better — along with new, cutting-edge again coding skills. Not only this VaR is not bad but I have passion for it so I am sure that at some point I will be embracing it again.

And that is the subtle reason why we stay cool and keep saying no to many consultancy projects that we have been offered so far. Because, at this stage, we rather abide by the original plan no matter the revenue stream we could generate by deviating from it. Simply because we think that our strategy leaves us with a superior VaR than the deviations. Indeed you feel somehow more in control and that releases stress.

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Sergio Alvarez-Teleña

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Demystifying trading, data science, entrepreneurship… Won’t be giving much publicity to what I say since it is just for “I already said it” moments with friends

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